How to Set KPIs Effectively for Better Alignment and Higher Growth

Setting key performance indicators is like planning the perfect road trip. You need:

• A destination (clear organizational objectives).
• A map (relevant metrics).
• Checkpoints along the way (achievable short-term targets).
• The flexibility to reroute based on road conditions (regular reviews and adjustments).

These four things ensure a smooth journey towards your destination.

However, determining what you should measure is not always easy.  

Ensuring KPIs match the organization's overall strategy can be tricky as well, particularly in large organizations with many departments and strategic goals.

In this article, we'll walk you through the process of effective KPI management. We'll show you:

• How to set KPIs for employees that are meaningful, measurable, and achievable.
• How to ensure these KPIs align with your overall strategy for maximum impact.

🕵️‍♀️ Understanding the basics of key performance indicators

A KPI is a quantifiable measure of performance over a given period.

Key performance indicators determine if the organization is moving toward its strategic objectives.

Done effectively, using KPIs is one of the most popular goal-setting frameworks that can scale up your organization.

As Brian David Crane, founder of Spread Great Ideas, testifies:

"Setting KPIs has helped us ensure that everyone in the organization is focused towards the same vision within their work roles.

Not only has it improved operational efficiency, but it has led to improved client relationships, increased customer satisfaction, and helped us filter areas of strength & weakness and take remedial actions where needed."

Key performance indicators take various forms and relate to all business functions. Each KPI links to a specific objective the organization is pursuing.

Here's an overview of the most common types of KPIs that you need to track across various key business functions:

Marketing KPIs

They gauge the efficiency of the marketing team's processes.

Marketing KPIs also measure the effectiveness of the organization's marketing efforts in accomplishing defined goals and critical business objectives.

Examples:

• customer acquisition cost;
• organic traffic growth rate;
• click-through rate.

Financial KPIs

These are key performance indicators that check the company's progress toward its desired levels of:

• revenue;
• profitability;
• liquidity;
• overall financial health.

Examples:

• revenue growth rate;
• operating cash flow margin;
• debt-to-equity ratio.

Sales KPIs

They take a detailed approach to measuring the effectiveness of sales processes.

Sales KPIs also measure the sales team's efficiency in meeting the organization's objectives.

Examples:

• customer lifetime value (CLV);
• sales cycle length;
• average deal size.

Customer-focused KPIs

Customer-focused metrics measure how well the organization is meeting the needs of its customers. They assess:

• customer service efficiency;
• customer satisfaction;
• customer retention; 

They assess how well the organization's customer-focused strategies meet customer expectations.

Examples:

• average resolution time;
• net promoter score (NPS);
• customer satisfaction score (CSAT).

Human resources KPIs

These are HR metrics that measure various aspects of workforce management. This includes employee experience and overall HR functions over a period of time.

Examples:  

• absenteeism rate;
• employee attrition rate;
• cost per hire.

4 Major levels of KPIs

Organizations can apply and manage key performance indicators at four main levels.

These levels are hierarchical, with each level focusing on different scopes of the business:

• company-level;
• team-level;
• individual-level;
• project-level.

These levels make it easier to measure performance using varying degrees of specificity. It ensures that all efforts in the organization align with the overall strategic direction.

Company-level KPIs

KPIs at the company level are all-encompassing. They show the overall health and performance of the organization at a glance.

Achieving them requires effort from all departments, which keeps everyone going in a similar direction.

Team-level KPIs

These KPIs assess the performance and effectiveness of specific teams within their established roles and responsibilities.

Team-level KPIs connect teams' daily tasks with the overarching key business objectives.

Individual-level KPIs

They assess an employee's effectiveness, efficiency, and achievements in their role.

Setting individual-level KPIs facilitates better:

• performance evaluations;
• professional development discussions;
• goal setting.

Project-level KPIs

Project KPIs track results in two key ways:

• During a project, to reveal any weaknesses in its process.
• After its completion, to determine its value.

Project KPIs use data sets specific to the project but still align with the key business objectives.

The importance of setting effective KPIs

KPIs provide performance targets that employees can shoot for and quantitative milestones that you can use to gauge their progress.

They provide valuable context for evaluating performance and creating targeted employee development plans.

Additionally, KPIs help leaders monitor the company's overall performance. This allows them to gain valuable insights and make well-informed adjustments to organizational strategies.

These data-driven decisions positively impact the organization's success.

🪜7 Steps to setting effective KPIs

"In a world where everything is being measured, take care to measure the right things in the right way." Jeff Smith, author of "The KPI Book."

Learning how to set KPIs effectively can:

• Enhance your employee performance management system.
• Drive the company's vision and mission.
• Aid in making informed decisions like resource allocation.

Here's how you can set good KPIs.

1. Define the organizational goals

Start by framing the larger picture.

Define the questions you want the KPIs to answer concerning the trajectory of your organization. These will be the key areas your key performance indicators will focus on.

Without this step, you might end up with an overwhelming list of potential KPIs. And not all of them will be relevant or necessary.

It could lead to potential confusion and misdirection of effort and resources.

💡 Tip: Define both short-term and long-term key business objectives. Short-term objectives help you allocate resources to achieve immediate results. These results contribute to the long-term strategic direction of the organization.

2. Assess current performance

Collect your current performance data. It'll guide you in setting KPIs that reflect the improvements you aim to achieve in your organization.

Additionally, compare your current performance to industry-specific performance standards. This can help you understand how your performance stacks up against your competitors.

For instance, if you're setting sales KPIs, find out the average sales conversion rate of other SaaS companies in your niche.

This comparison allows for a more realistic evaluation of your current performance. It carries two other significant benefits:

• Industry-specific performance benchmarks provide valuable context for setting competitive KPIs.
• Industry benchmarks help in setting achievable KPIs for improvement.

3. Involve stakeholders

Don't just take your KPIs as performance measures. Consider them as valuable assets and involve stakeholders in setting them.

"When KPIs are viewed as assets as well as metrics, they invite more thoughtful and intentional investment." Kiron, D., et al., Strategic Alignment With AI and Smart KPIs.

Involving stakeholders helps you choose KPIs that align with their expectations and creates a shared vision of what success will look like.

This is a solid way to boost their investment and commitment to achieving business goals.

Stakeholder involvement can also provide meaningful input on collecting, analyzing, and presenting KPIs data.

4. Identify your KPIs 

This is the part where you nail down your key performance indicators.

They should be relevant to your organization's short-term and long-term objectives. The KPIs should also clearly show your progress towards these strategic goals.

Use the SMART criteria when defining the KPIs. This means your key performance indicators should be:

• Specific: The KPIs must relate to a specific business function.
• Measurable: Ensure you can use a quantifiable measure to track progress and compare performance over time.
• Achievable: The KPIs should be realistic and possible to achieve based on the current level of performance and available resources.
• Relevant: They should contribute directly to achieving the broader organizational goals.
• Time-bound: The KPIs should evaluate performance within a defined period.

💡 Tip: In addition to long-term key performance indicators, identify complementary short-term KPIs. It's a great strategy to stay on track and gain visibility into your progress.

➡️ Don't leave it to chance. Master how to use employee goal-setting software to set super-SMART KPIs.

5. Define the mechanisms for tracking KPI progress

Once you determine your KPIs, define the tools and methods to track and report their progress.

Use tools to turn the KPI data into easily digestible insights into your progress.

Visualization tools are the best approach, particularly:

• dashboards;
• graphs and charts;
• scorecards.

Dashboards

They display multiple key performance indicators on a single platform and monitor related KPIs simultaneously.

Check out this dashboard from SlideTeam, for instance. It puts marketing KPIs related to a search engine marketing campaign project in a central location.

The dashboard makes it easy to assess the overall campaign performance quickly over time.

Graphs and charts

They are visual representations of trends in KPI data.

This graph from Dashboard Builder, for example, shows the changes in sales KPI data over a time period.

Scorecards

Scorecards compare the current performance of each metric against the target performance, such as this KPI scorecard for a call center employee.

💡 Tip: Be clear on the structure of your tracking mechanisms, such as the contextual information, targets, and benchmarks you'll include.

➡️ Give this goal tracker template a try. It'll make tracking KPI progress easier.

6. Create a routine for communicating KPI progress and team contributions

Build a culture of regularly sharing the progress of your KPIs with your employees.

Don't just share the raw data. Add a narrative highlighting the wins and any room for improvement.

To ensure effective communication and management of KPI progress assign an overseer for each KPI. They can be key leaders who embody and steer a new KPI during its initial months.

Be sure to acknowledge the efforts and contributions of teams in your communications. And remember to reward innovation and outstanding performance.

It creates a positive environment, cultivating employee dedication toward achieving the KPIs.

7. Define a framework for reviewing and adjusting the KPIs

If a KPI is no longer effective in capturing performance or no longer aligns with the evolving organizational goals and priorities, it becomes irrelevant.

Make a habit of regularly reviewing and adjusting the KPIs. This ensures their continued usefulness to the company.

The recurrence of these reviews will depend on:

• The nature of your industry: A fast-paced industry requires more frequent reviews, such as quarterly. Annual or bi-annual reviews can work for more static or slow-moving industries.
• The unique functions of different departments: An annual timeline would be more practical for HR. It allows for implementing policies that improve specific KPIs, such as employee engagement rates. In contrast, a monthly review would be better for customer service, as it ensures continuous service quality improvement.

➡️ Learn how to measure employee engagement rate, including the most effective methods and critical employee engagement metrics.

🧩 How to set KPIs for your team in 7 easy-to-follow steps

Use these strategies to align individual contributions and the team's overall performance with the organization's broader strategic goals.

1. Define what KPIs are and what they are not

Transparency is essential when setting key performance indicators for your team members. It aligns employees with the company's goals.

Clarify what the KPIs are and what they aren't to create a shared understanding and focus within the team.

As John Pennypacker, VP of Sales and Marketing at Deep Cognition, puts it:

"Enlightening your staff on KPIs' significance and advantages for the company will help them understand their importance.

You should clarify how KPIs support the strategic objectives and priorities and align with the organization's mission, vision, and values.

You want to emphasize how KPIs assist staff members in understanding their roles and duties, tracking their development and performance, identifying their areas of strength and weakness, and earning rewards."

Gather the team members and discuss:

• What success looks like for each KPI.
• How the KPIs will impact their performance rating.
• How you'll use the KPIs to measure goal progress.
• Any other areas the KPIs will impact, such as salary increases, benefits, or promotions.

2. Align individual roles and KPIs with team KPIs

Ensure there's a balanced distribution of individual KPIs customized to each member's specific job functions.

The individual KPIs should contribute directly to the diverse aspects of achieving the team's KPIs.

They should also reflect how each team member's performance contributes to the overall organizational objectives.

3. Personalize individual KPIs

Don't only customize individual KPIs based on their roles. Personalize them further based on the individual:

• strengths;
• skills;
• development areas;
• career aspirations;

It's a great way to enhance employees' motivation, engagement, and performance.

4. Focus on performance and growth

As a results-driven team, link your KPIs to your performance and development goals. Your KPIs should continuously improve your team's performance.

Here's how you can do it:

• Identify areas for improvement. Set challenging yet achievable KPIs that address performance gaps.
• Provide clarity. Ensure employees grasp the work quality needed to meet individual and team KPIs.
• Use KPI data for development. Pinpoint areas where skill development or training could enhance performance.

💡 Tip: When conducting performance evaluations based on objective data collected from the KPIs, consider the broader circumstances that may have influenced outcomes.

For example, if the team was reduced to half but the KPIs stayed intact, consider this context when evaluating the performance of the remaining team members.

5. Review and discuss the KPIs during 1:1 check-ins

Use 1:1 performance check-ins to discuss KPI progress.

Make it a safe space where team members can reflect on their KPI performance and discuss strategies for performance enhancement.

It's also an opportunity to realign the key performance indicators with changes in the organization's priorities. And if a team member has met their KPIs before their due date, you can update the metrics to drive even higher performance.

➡️ We have 17 free one-on-one meeting templates you can use to structure productive conversations on KPI progress.

6. Offer continuous feedback and support

Create a system of continuous performance development through ongoing feedback and support.

You're able to provide relevant coaching to help team members understand, strive for, and achieve their KPIs.

This, in turn, helps them contribute more effectively to the overall organizational success.

Additionally, providing continuous support helps identify and address potential issues in real-time.

This proactive approach prevents issues from escalating into roadblocks that could slow down KPI progress.

➡️ Sharpen your feedback skills. Use this training on giving and receiving feedback to become a better manager and coach.

7. Acknowledge and reward KPI completion

Link the achievement of the KPIs to recognition and rewards. Rewards are a powerful motivator that reinforces the importance of high performance.

It creates a culture of continuous improvement and motivates team members to find innovative ways to achieve and exceed the next KPIs.

➡️ Are you ready to set your KPIs? We have examples of employee key performance indicators to give you a jumpstart.

💡3 Mistakes to avoid when setting KPIs

These three mistakes can hinder your organization from setting meaningful KPIs that drive performance improvement and organizational success.

1. Setting unrealistic KPIs

Getting overambitious with your KPIs creates a high-pressure environment. It harms employee morale and productivity.

In the worst-case scenario, they could resort to using unethical methods to achieve the KPIs, such as cutting corners.

Overly easy KPIs, on the other hand, fail to motivate employees to push themselves. It could lead to complacency.

Set key performance indicators that strike the right balance between achievable and challenging.

2. Lack of clarity and alignment across the organization

Make sure everyone understands why the KPIs are essential and what's expected. Doing so:

• Increases ownership of the KPIs and boosts motivation.
• Ensures that everyone is working towards a unified vision and not divergent goals.

Clarity also creates a solid foundation for objectively evaluating performance.

When everyone understands what you expect of them and how you'll measure performance, evaluations become fairer based on the agreed-upon criteria.

3. Lack of continuous monitoring and adjustment of KPIs

Without regular monitoring and adjusting, KPIs can become outdated and irrelevant to the organization's priorities and business environment.

This turns your KPIs into a checklist exercise. You lose out on an opportunity to have a real-time navigation tool that leads to continuous performance improvement.

➡️ Check out the best performance management tools that can significantly enhance your efforts in setting, monitoring, and evaluating your KPIs.

➡️ Set KPIs that propel progress with Zavvy

Setting, communicating, and revisiting your KPIs creates a culture of continuous improvement and strategic alignment. 

To succeed in setting and managing aligned and SMART KPIs, make technology and automation your allies.

Zavvy's goal management software offers comprehensive handy tools to enhance your KPI management efforts.

You can even set complementary short-term KPIs nested within the main KPIs. Plus, it's super-easy to adjust your KPIs in response to changes in the business's priorities.

But the best thing about this tool? It integrates with our performance review software and one-on-one meeting software.

That means your KPIs appear in the context panel of both tools, along with:

• The employee's feedback results.
• A career-level description.
• Detailed competencies for their role.

This allows for more contextual, aligned, and productive employee reviews and 1:1 discussions.

With just one click, you can witness these capabilities in action. 

📅 Let's harness the power of well-defined KPIs to steer your organization toward its growth objectives. Book a demo to see how Zavvy can simplify and enhance your KPI management process.